UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the United States Securities Exchange Act of 1934
-----------------------
For The Quarter Ended September 30, 1996 Commission File No. 2-95011
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(Exact name of registrant as specified in its charter)
Massachusetts 04-2846627
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Center, 21st Floor, Boston, MA 02111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 482-8000
-----------------------
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
There are no Exhibits.
Page 1 of 14
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<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
<S> <C> <C>
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of September 30, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
September 30, 1996 and 1995 and For the Nine Months Ended
September 30, 1996 and 1995 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 9 - 11
Computer Equipment Portfolio 12
Part II. OTHER INFORMATION
Items 1 - 6 13
Signature 14
</TABLE>
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/96 12/31/95
---------------- ----------------
<S> <C> <C>
Investment property, at cost (note 3):
Computer equipment $ 678,045 $ 1,556,972
Less accumulated depreciation 660,476 1,444,538
---------------- ----------------
Investment property, net 17,569 112,434
Cash and cash equivalents 45,272 123,547
Marketable securities (notes 2 and 5) 1,219 10,158
Rents receivable, net (note 2) 10,926 17,627
Sales receivable - 1,125
Accounts receivable - affiliates (notes 2 and 6) - -
---------------- ----------------
Total assets $ 74,986 $ 264,891
================ ================
Liabilities and Partners' Equity
Liabilities:
Accounts payable and accrued expenses - affiliates (note 4) $ 4,818 $ 6,657
Accounts payable and accrued expenses 20,413 31,749
Unearned rental revenue - 550
---------------- ----------------
Total liabilities 25,231 38,956
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 662,096 660,945
Cumulative cash distributions (663,092) (656,508)
Unrealized losses on marketable securities (note 5) (4) (18)
---------------- ----------------
- 5,419
---------------- ----------------
Limited Partners (25,020 units):
Capital contribution, net of offering costs 11,139,998 11,139,998
Cumulative net income 1,508,928 1,556,014
Cumulative cash distributions (12,598,821) (12,473,721)
Unrealized losses on marketable securities (note 5) (350) (1,775)
---------------- ----------------
49,755 220,516
---------------- ----------------
Total partners' equity 49,755 225,935
---------------- ----------------
Total liabilities and partners' equity $ 74,986 $ 264,891
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 29,744 $ 117,174 $ 91,534 $ 355,205
Interest income 321 717 1,561 2,651
Recovery of net unsecured
pre-petition claim (note 6) 2,683 19,646 10,278 30,154
------------ ------------ ------------ ------------
Total revenue 32,748 137,537 103,373 388,010
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation - 50,738 68,864 152,645
Provision for (reversal of)
doubtful accounts 7,842 443 14,586 (7,537)
Interest - 162 - 1,007
Related party expenses (note 4):
Management fees 2,252 5,731 7,243 17,973
General and administrative 19,561 16,718 58,961 50,925
Net loss (gain) on sale
of equipment 780 (825) (2,720) (3,562)
Net loss on sale of
marketable securities 2,374 - 2,374 -
------------ ------------ ------------ ------------
Total costs and expenses 32,809 72,967 149,308 211,451
------------ ------------ ------------ ------------
Net (loss) income $ (61) $ 64,570 $ (45,935) $ 176,559
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ - $ 2.43 $ (1.88) $ 6.57
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (45,935) $ 176,559
------------ -------------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 68,864 152,645
Provision for (reversal of) doubtful accounts 14,586 (7,537)
Net gain on sale of equipment (2,720) (3,562)
Net loss on sale of marketable securities 2,374 -
Net increase in current assets (6,887) (23,001)
Net decrease in current liabilities (13,725) (102,598)
------------ -------------
Total adjustments 62,492 15,947
------------ -------------
Net cash provided by operating activities 16,557 192,506
------------ -------------
Cash flows from investing activities:
Proceeds from sale of marketable securities 8,131 -
Proceeds from sales of investment property 28,721 3,562
------------ -------------
Net cash provided by investing activities 36,852 3,562
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt - (30,536)
Cash distributions to partners (131,684) (162,959)
------------ -------------
Net cash used in financing activities (131,684) (193,495)
------------ -------------
Net (decrease) increase in cash and cash equivalents (78,275) 2,573
Cash and cash equivalents at beginning of period 123,547 75,704
------------ -------------
Cash and cash equivalents at end of period $ 45,272 $ 78,277
============ =============
Supplemental cash flow information:
Interest paid during the period $ - $ 2,083
============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 30, 1995
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley Lease Income Limited Partnership
III-B (the "Partnership") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission for Form 10-Q and reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Pursuant to such
rules and regulations, certain note disclosures which are normally required
under generally accepted accounting principles have been omitted. It is
recommended that these financial statements be read in conjunction with the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1995.
(2) Summary of Significant Accounting Policies
Allowance for Doubtful Accounts
The financial statements include allowances for estimated losses on receivable
balances. The allowances for doubtful accounts are based on past write off
experience and an evaluation of potential uncollectible accounts within the
current receivable balances. Receivable balances which are determined to be
uncollectible are charged against the allowance and subsequent recoveries, if
any, are credited to the allowance. The allowance for doubtful accounts included
in rents receivable was $15,425 and $839 at September 30, 1996 and December 31,
1995, respectively. The allowance for doubtful accounts - affiliates was $6,699
and $17,440 at September 30, 1996 and December 31, 1995, respectively, both of
which pertained to the unsecured pre-petition claim balance.
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of 629 shares of common stock in Continental Information Systems
Corporation ("CISC") received by the Partnership in the distributions made
December 27, 1994, July 20, 1995 and October 20, 1995 by the Trustee of the
Liquidating Estate of CIS Corporation, et al ("the Trustee"), with respect to
the outstanding unsecured pre-petition claim. During the second quarter of 1995,
the stock began trading, thereby providing an objective valuation measure for
establishing the cost basis. Unrealized gains and losses are recorded directly
in partners' equity except those gains and losses that are deemed to be other
than temporary, which would be reflected in income or loss (see note 5).
(3) Investment Property
At September 30, 1996, the Partnership owned computer equipment with a
depreciated cost basis of $17,569, subject to existing leases. All purchases of
computer equipment are subject to a 3% acquisition fee paid to the General
Partner.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 30, 1995
(Unaudited)
(4) Related Party Transactions
Fees, commissions and other expenses paid or accrued by the Partnership to the
General Partner or affiliates of the General Partner for the nine months ended
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $ 7,243 $ 17,973
Reimbursable expenses paid 58,104 49,753
------------ ------------
$ 65,347 $ 67,726
============ ============
</TABLE>
Under the terms of the Partnership Agreement, the General Partner is entitled to
an equipment acquisition fee of 3% of the purchase price paid by the Partnership
for the equipment. The General Partner is also entitled to a management fee
equal to 7% of the monthly rental billings collected. In addition, the
Partnership reimburses the General Partner and its affiliates for certain
expenses incurred by them in connection with the operation of the Partnership.
(5) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires investments
in debt and equity securities other than those accounted for under the equity
method to be carried at fair value or amortized cost for debt securities
expected to be held to maturity, the Partnership has classified its investments
in equity securities as available for sale. Accordingly, the net unrealized
gains and losses computed in marking these securities to market are reported as
a component of partners' equity. At September 30, 1996, the difference between
the fair value and the cost basis of these securities is an unrealized loss of
$354.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at September 30,
1996 and December 31, 1995, respectively, are as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------ ---------------------
Cost Fair Cost Fair
Basis Value Basis Value
<S> <C> <C> <C> <C>
Investment in Continental Information
Systems Corporation Stock $ 1,573 $ 1,219 $ 11,951 $ 10,158
======== ======== ======== ========
</TABLE>
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 30, 1995
(Unaudited)
(6) Bankruptcy of Continental Information Systems Corporation
On January 19, 1996, April 19, 1996 and July 19, 1996, respectively, the
Partnership received the fourth, fifth and sixth distributions from the Trustee
of the Liquidating Estate, et al, ("the Trustee") with respect to the unsecured
pre-petition claim. The fourth, fifth and sixth distributions consisted of cash
proceeds of $2,630, $4,965 and $2,555, respectively. The sixth distribution also
included 51 shares of common stock in Continental Information Systems
Corporation ("CISC"). Following the Trustee's sixth distribution, the
Partnership has a remaining unsecured pre-petition claim balance of $6,699 as of
September 30, 1996 (see note 7).
(7) Subsequent Events
On October 21, 1996, the Partnership received the seventh distribution from the
Trustee with respect to the unsecured pre-petition claim. The distribution
consisted of cash proceeds of $3,580. Following the Trustee's seventh
distribution, the Partnership has a remaining unsecured pre-petition claim
balance of $3,119 as of October 21, 1996. The General Partner anticipates that
the Trustee will make future distributions on the remaining outstanding claim
balance, although it is not possible at this time to determine when these
distributions will be made.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Results of Operations
The following discussion relates to the Partnership's operations for the quarter
and nine months ended September 30, 1996, compared to the same periods in 1995.
The Partnership realized a net loss of $61 and net income of $64,570 for the
quarters ended September 30, 1996, and 1995, respectively. Rental income
decreased $87,430 or 75% due to lower rental rates obtained on equipment lease
extensions and remarketings resulting after the initial lease term expires and
due to the decrease in the equipment portfolio. Interest income decreased as a
result of lower average short-term investment balances held during the current
quarter. The recovery of the unsecured pre-petition claim of $2,683 for the
quarter ended September 30, 1996 was the result of the receipt of the Trustee's
sixth distribution on the fully reserved unsecured pre-petition receivable (for
further discussion refer to note 6 to the financial statements).
Total costs and expenses decreased $40,158 or 55% during the three month
periods. Depreciation expense decreased due to a large portion of the equipment
portfolio becoming fully depreciated. Included in depreciation expense for the
quarter ended September 30, 1996 is a reversal of a provision for estimated
losses on the ultimate disposition of equipment. During the third quarter of
1996, the provision for doubtful accounts was increased $7,842 to account for
delinquent rents receivable. Management fees decreased as a result of the
decline in rental income. General and administrative expenses increased $2,843
or 17% due to an increase in the allocable salaries of the partnership
accounting and reporting personnel of the General Partner. The net loss on sale
of equipment is due to sales of equipment carrying high net book values. The net
loss on sale of marketable securities reflects the third quarter sale of stock
that had been received from the Trustee.
The Partnership realized a net loss of $45,935 and net income of $176,559 for
the nine months ended September 30, 1996 and 1995, respectively. The Partnership
realized rental income of $91,534 and $355,205 for the nine months ended
September 30, 1996 and 1995, respectively. The $263,671 or 74% decrease includes
a $48,880 adjustment in the nine months ended September 30, 1996 for an
overaccrual of rental income recognized in prior periods. The adjustment relates
to equipment that came off lease and was returned to inventory. Other factors
impacting the decline in rental income are the remarketing of equipment at lower
rates and the overall decrease in the equipment portfolio. Interest income
decreased $1,090 due to the Partnership carrying lower average short-term
investment balances during 1996. As mentioned above, the recovery of the
unsecured pre-petition claim in the current period was the result of the receipt
of the fourth, fifth and sixth distributions from the Trustee in the total
amount of $10,278 (see note 6).
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $62,143 or 29% between the nine month
periods. As discussed in the quarter analysis above, depreciation expense
decreased $83,781 or 55% between 1996 and 1995 due to a large portion of the
equipment portfolio becoming fully depreciated and due to the overall reduction
of the Partnership's equipment portfolio. Another reason for the decrease in
depreciation expense can be attributed to the reversal of a provision for
estimated losses on the ultimate disposition of equipment. The provision for
doubtful accounts increased in the current year due to an increase in delinquent
rents receivable. Management fees decreased $10,730 or 60% due to the decline in
rental income. General and administrative expenses increased $8,036 or 16% due
to an increase in the allocable salaries of the partnership accounting and
reporting personnel of the General Partner during the current year. The decrease
in net gain on sale of equipment between 1995 and 1996 can be attributed to a
decrease in equipment sales. The net loss on sale of marketable securities
reflects the third quarter sale of stock that had been received from the
Trustee, as stated above.
The Partnership recorded net income per Limited Partnership Unit of $0.00 and
net income of $2.43 for the quarters ended September 30, 1996 and 1995,
respectively, and a net loss of $1.88 and net income of $6.57 for the nine
months ended September 30, 1996 and 1995, respectively. The allocation for the
nine months ended September 30, 1996 includes a cost recovery allocation of
profit and loss among the General and Limited Partners which results in an
allocation of net loss to the Limited Partners in the third quarter of 1996.
This cost recovery allocation is required to maintain capital accounts
consistent with the distribution provision of the Partnership Agreement. In
certain periods, the cost recovery of profit and loss may result in an
allocation of net loss to the Limited Partners in instances when the
Partnership's operations were profitable for the period.
Liquidity and Capital Resources
For the quarter ended September 30, 1996, rental revenue generated from
operating leases and sales proceeds generated from equipment sales were the
primary sources of funds for the Partnership. As equipment leases terminate, the
General Partner determines if the equipment will be extended to the same lessee,
remarketed to another lessee, or if it is less marketable, sold. This decision
is made upon analyzing which option would generate the most favorable results.
Rental income will continue to decrease due to two factors. First, lower rates
are obtained due to the remarketing of existing equipment after the expiration
of the original lease. Typically the remarketed rates are lower due to the
decrease in useful life of the equipment. Second, the increasing change of
technology in the computer industry usually decreases the demand for older
equipment, thus increasing the possibility of obsolescence. Both of these
factors together will cause remarketed rates to be lower than original rates and
will cause certain leases to terminate upon expiration. Future rental revenues
amount to $22,718 and are to be received during the current year.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
During the fourth quarter of 1995, the General Partner announced its intentions
of winding down the operations of the Partnership. It is anticipated that
substantially all of the assets will be liquidated and the proceeds will be used
to settle all outstanding liabilities and make a final distribution early in
1997. The Partnership will not be terminated until the unsecured pre-petition
claim against CIS Corporation has been settled and the proceeds have been
distributed to the Partners.
The Partnership's investing activities as of September 30, 1996 generated
proceeds of $28,721 from equipment sales with a cost basis of $26,000. The
Partnership has no material capital expenditure commitments and will not
purchase equipment in the future as the Partnership has reached the end if its
reinvestment period and has announced its intentions of winding down the
operations of the Partnership. The Partnership generated proceeds of $8,131 on
the sale of 4,202 shares of CISC stock having a cost basis of $10,505.
Cash distributions are currently halted in an effort to minimize cost and
accumulate cash in anticipation of a final distribution to the Partners once the
Partnership has been liquidated. The effects of inflation have not been
significant to the Partnership and are not expected to have any material impact
in future periods.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP
Leasing Programs, Inc. from CMI Holding Co. Under the new ownership, it is
expected that TLP Leasing Programs, Inc. will continue to operate in the same
manner of business as it has in the past.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1996
Lessee
Brylane, Incorporated
FAX International, Incorporated
Hughes Aircraft Company, Incorporated
Securities Industry Automation Corporation
<TABLE>
<CAPTION>
Equipment Description Acquisition Price
<S> <C>
Computer Peripherals $ 488,192
Processors & Upgrades 47,463
Other 142,390
----------------
$ 678,045
================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(A Massachusetts Limited Partnership)
<S> <C>
Item 1. Legal Proceedings
Response: None
Item 2. Changes in the Rights of the Partnership's Security Holders
Response: None
Item 3. Defaults by the Partnership on its Senior Securities
Response: None
Item 4. Results of Votes of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response:
A. None
B. None
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: November 14, 1996
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000760375
<NAME> WELLESLEY III-B FDS 9/30/96
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 45,272
<SECURITIES> 1,219
<RECEIVABLES> 33,050
<ALLOWANCES> 22,124
<INVENTORY> 0
<CURRENT-ASSETS> 57,417
<PP&E> 678,045
<DEPRECIATION> 660,476
<TOTAL-ASSETS> 74,986
<CURRENT-LIABILITIES> 25,231
<BONDS> 0
<COMMON> 11,140,998
0
0
<OTHER-SE> (11,091,243)
<TOTAL-LIABILITY-AND-EQUITY> 74,986
<SALES> 91,534
<TOTAL-REVENUES> 103,373
<CGS> 0
<TOTAL-COSTS> 7,243
<OTHER-EXPENSES> 127,479
<LOSS-PROVISION> 14,586
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (45,935)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,935)
<EPS-PRIMARY> (1.88)
<EPS-DILUTED> 0
</TABLE>
